Best of SXSW14: Five Secrets of Getting Acquired (or Raising Money)

It has been a cold and rainy SXSW, much to the dismay of the partygoers and brands trying to draw people in to their elaborate exhibits. One side effect of the weather, though, is that every indoor content session has been jam-packed. And the content has been good. So much so, that many sessions are reaching capacity 30-45 minutes before the session starts. Lesson learned for next year: arrive early!

This is my first trip to SXSW, and so far, I’ve been blown away. But, I know it can be difficult to get out to part of this awesome conference, so for the benefit of you, our faithful blog reader, I am going to recap my favorite session each day.

On Saturday, I really enjoyed “Five Secrets of Getting Acquired (or Raising Money)” because of its practical and pointed advice. Many entrepreneurial panels focus just on companies looking to raise capital, but the advice here was relevant for any company pitching a product, not just those wanting to get acquired or raise money.

The first step to getting acquired or raising money seems obvious, but too often many startups take it for granted: if you want to get acquired or raise money, you must have a great product and you must get lucky. In fact, many people who get acquired are dumb lucky. But, by following their advice, you can create your own luck. Here were their five secrets:

1. Hire an adult on your team – and we’re not talking about just hiring your dad. Your company’s leadership team needs someone on it with extensive, directly relevant prior experience. Investors always say they invest in your team, which is true – so make sure your team has direct industry experience on it. You also need someone on your team who can speak in the same financial terms that investors will speak in.

Remember, there are millions of ideas. Your ability to execute is what investors are going to be looking for, and having that experience on your leadership team will make the investors more confident.

2. Talk in sound bites. You must be able to talk about what your company does succinctly and describe it in a way a nine year old can understand. Keep things short and simple and get right to the point in your presentations.

To make sure your presentation is easily understood, give your 30-second elevator pitch to someone outside your industry and see if they really understand what your company does after the 30-seconds are up. Remember that your elevator pitch needs to be memorable, so don’t over-complicate things.

3. Be appealing. Your team must come across as professional and easy to work with in your presentation. Investors want to work with people who they think are going to be good partners and who they won’t have conflict with. They want someone who can handle tough conversations with logic, not emotion.

Financially speaking, investors and acquirers generally don’t care about profit early on. They want to see your ability to scale and know that you can be very profitable once you scale. Acquirers are acquiring you, and investors are investing in you not for what you are today but what you can be in the future. They will care about your gross margin, not your net margin. They may try to negotiate with you based on what your business is worth today, but that’s just a smokescreen. Really, they care about where they can get your business to, not where you are today.

Remember, there are two types of investors or acquirers: financial and strategic. Financial investors and acquirers believe if they put more money in your company, you can scale quicker. Strategic investors and acquirers think if they can get you more customers or partnerships, you can scale quicker. Find the type of investors or acquirers who will be best fit your company.

4. Get your sh*t together. You must have to have really good financials. Get a professional involved to help with your financials. The moment you start saying any numbers, if those numbers aren’t one hundred percent accurate you compromise the deal. And you’d better hit your projections as you are negotiating for investment (which can take months). If you fall short of projections during a negotiation period it can affect the entire deal.

Along with good financials, you must have a deep knowledge of your competitors. You lose credibility if an investor or acquirer points out a competitor that you weren’t aware of.

5. Go make friends. 18 months before you want to sell you should identify potential buyers and start to network with them. Get on their radar. Get a feel and understanding of their strategic roadmap and who they are looking to acquire. Entrepreneurs are traditionally bad at this – they focus on their products and clients, not networking with acquirers and investors. Entrepreneurs who work relationships with potential buyers will get acquired much more often and for much more money.

Treat your exit like you treat your sales efforts – build a list of prospects, make lots of calls, get introductory meetings and then follow up! Follow up is key and where many people fall down. You need to keep your contacts updated as to how you are doing (and ideally telling them how you are exceeding your projections).

Along those lines, keep your financial projections conservative. You want to be able to say you are exceeding your numbers. And don’t go into too much financial detail until you have to. Talk about your growth rate, gross margin, and new customer acquisitions. If you are a Software as a Service (SaaS) business, you need to have at least a 70 percent gross margin, a growth rate at least 20 percent and a plan that proves you can scale your business scale faster than your need to hire people.

Those are their secrets – some great practical advice from Gabe and Matt. And, since it really is all about execution, I’m confident that if you take these ideas and execute well, you’ll get the investment or achieve the exit of your dreams.

Geoff Wilson

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Steve Haber

Glad you are enjoying SXSW Geoff, and trust you are having a great Texas experience! Some crazy Texas weather though with it cool and rainy, then hot and steamy, and the cold in the 30’s. But fear not, dry and sunny and 70 this week which will make Austin gorgeous and fun. Trust you are hearing some great bands on 6th street and getting your fill of Tex Mex as well. And great you are sharing those insights on raising money. What fun, when in start-up mode. I have a few brushes with fame and fortune, one being Head of US Sales and Agency Relationships for start-up Real Time Content, a British Telecom incubated SaaS firm. Had to lead the sales charge coast to to coast in the US and also help with prospecting in the UK and Europe, and our biggest challenge was the monthly meeting with our benefactors and financiers at New Venture Partners in New Jersey. Would meet there monthly with WebEx feeds to the UK to impress the investors with our traction in the market. Very savvy and tough businessmen and we had to bring a sharp pencil every time to verify our progress and numbers and keep the funds coming in, and yes, everyone needed to be ‘an adult’ through those proceedings. I remember the weather was 20 and chilly outside – and extremely hot under the collar inside, as we defended every fact and figure. Much appreciate you sharing the latest and greatest on the subject, and continued success to you and the crews at 352!
All the best, Steve Haber.

Geoff

Thanks Steve. Much like your story, while we were there SXSW was in the 40s (and raining) some days and the 70s other days. Maybe next year we’ll get sunshine the whole way through.